TUNIS, Tunisia, February 26, 2013/African Press Organization (APO)/ – The Board of Directors of the African Development Bank (AfDB) approved on Wednesday, February 20 an unfunded US $200-million Risk Participation Agreement (RPA) with Standard Chartered Bank (SCB). The facility will help address critical market demand for trade finance in Africa by providing support for trade in vital economic sectors such as agribusiness and manufacturing. Moreover, it will foster financial sector development, regional integration, and contribute to government revenue generation.

The RPA between the two banks will allow them to share the default risk on a portfolio of qualifying trade transactions originated by issuing banks in Africa and confirmed by SCB. As a 50/50 risk sharing arrangement, SCB will match AfDB’s undertaking in every transaction, thereby creating a maximum portfolio of up to US $400 million. The Risk Participation Agreement will be for a period of three years.

The majority of African banks have small capital bases which constrain their ability to obtain adequate trade limits from international confirming banks and to undertake sizeable transactions that have significant development impact. Secondly, despite the growth in trade risk distribution globally, local banks in Africa have not significantly benefitted from this growth.

The AfDB’s value added lies in the use of its “AAA” rating to share trade risk and expand the trade finance capacity of banks in Africa, thereby expanding trade and strengthening regional integration. This facility will result in the provision of significant support to African banks and SMEs. Counting roll-overs, it will facilitate approximately US $2.4 billion of trade in intermediate and finished goods, raw materials and equipment to support economic growth.

The facility is in line with AfDB’s Regional Member Countries’ priorities to promote trade and in accordance with the African political objectives as reaffirmed during the 18th African Union Ordinary Session held in January 2012. It also aligns with the Bank’s Regional Integration Strategy, which seeks to consolidate the Bank’s engagement in trade finance in Africa.

• Photo: AfDB President Mr. Donald Kaberuka.

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